Notes on 'Triple Entry Accounting'

Background information for the Bitcoin paper. Written by Ian Grigg in 2005. Just
some short notes written in free recall. First reading.

The paper

Grigg distinguishes between several phases of accounting. We start off with
“single entry accounting”, which is essentially just keeping a list of accounts
and amounts. If you move a table from your kitchen to your living room, you
strike off the table from the “kitchen” lisdt and hopefully you remember to add
it to the living room list. This works for households, but is error-prone and
there are many examples of errors in the real world.

Double-entry bookkeeping is more than 500 years old and makes it easier to
identify and reduce errors when value is being transacted. The basic idea is
that each transaction consists of two sides: a debit and a credit side, and they
must always be equal. If Alice buys a coffee she’d credit her asset account and
debit her equity account. The fundamental accounting equation says that Assets =
Liabilities + Equity. More commonly, we’d say we debit her expense account,
which is a type of negative equity, but these notes aren’t about double entry
bookkeeping per se.

Grigg then goes on to talk about signatures and receipts. The receipt is
essentially proof that a transcation has taken place, and a digital signature
makes it clear that Alice intend to give money to Bob for the coffee.

There’s a third party here: Ivan the Issuer. I am bit fuzzy on how to think
about Ivan the issuer’s role in this coffee transaction and I prefer not to
refer back to the paper, because this uncertainty can be useful. Perhaps there’s
something in that abstraction that doesn’t make complete sense. I guess in the
cash sense the government is the issuer and just by using the cash it’s A-OK? In
the case of a bank transaction, Bob waits for Alice’s card to clear. The bank
then gives information back which acts as a receipt. Both Alice and Bob can now
use that receipt. What Ivan, the bank, in this case does is makes sure Bob has
authorization (signature) from Alice to take money, and that Alice has enough
money on her account (and that her card is valid, etc).

The main idea seems to be: the receipt is the transaction. By which is to say,
if you have a digital signature by Alice and there’s receipt for the transaction
that acts as proof that the transaction has taken place. This hints at the idea
of a shared source of truth, as opposed to each individual having their books.
That’s pretty neat indeed. Certainly reduces error, fraud and possibly overhead.

He then goes on about how we can combine a shared public ledger with private
information. And lots of other meaty things that I am glossing over in this free
recall session.

He also hints at invoice as the transaction, which seems to include
fulfillment of orders etc. I.e. smart contracts. (I feel like this part is often
glossed over. It’s very non-trivial to automatically check if customers are
happy. We have customer support and legal systems and conventions and all kinds
of things. Looking at the hash of a piece of memory is one thing, but sensors?
Oracle as a jury? Even Bitcoin Core can’t keep from going corrupt, what makes
you think having an oracle is a straightforward problem? It’s good to dream but
this is A Hard Problem.)

Thoughts

I found the paper to be a bit fuzzy and not very polished, to be honest (perhaps
that is more reflective of my current muddy mind and not the paper, who knows).
It has some interesting ideas but it’s a bit grandiose to talk about “triple
entry bookkeeping” considering the longevity of double entry bookeeping. Really
the innovation here is digital signatures, which allows trust at a distance
between unknown parties, and Bitcoin itself, with the associated decentralized,
immutable, timestamped source of truth database. There’s still an interesting
line from here to Bitcoin though. I wonder what Satoshi was thinking when
reading this paper.

I also wonder about this tension I feel when I read “decentralization” papers.
For being about decentralized an awful lot of them seem to require full adoption
to work. Double entry bookkeeping is useful for individual, and signatures are
useful for two individuals (assuming they both understand what it means), but
this generalized Public Ledger For Everything doesn’t strike me as being very
decentralized, to be honest. Even the Internet in the beginning, as far as I
know, worked well with just a few nodes. More information could be added by
people doing manual data entry and scanning and putting it up online. So what’s
the equivalent of that bottom-up growing and acceptance of the outside world? If
that doesn’t exist the technology won’t succeed, in my opinion. Bitcoin is an
interesting case, as one individual can place a small bet on it storing some
value. Ideally people accept it for regular transactions, but this is just one
of many payment methods. Like when you get blocked by a huge corporation network
like VISA. There’s something here about optionality which is very interesting.